Week in Review May 19, 2017
Despite suffering their biggest one-day decline of the year on Wednesday, stocks managed to rebound on Thursday and Friday to end the week with relatively minimal damage.
The turmoil in Washington finally caught up to Wall Street on Wednesday, when both the Dow and S&P dropped 1.8% and NASDAQ dove 2.6%, but the rebound over the next two days erased most of the declines. Both the Dow and the S&P 500 were down 0.3% for the week, their second consecutive weekly loss, while NASDAQ lost 0.5%, its first decline in five weeks. Small-cap stocks were down twice as much, the Russell 2000 dropping more than 1% for the second week in a row. European stocks were down about 1% on the week while Asian stocks were mostly higher except in Japan, where the Nikkei 225 fell 1.5%, its first weekly loss in five weeks.
Treasury bonds, commodities and foreign currencies were the biggest beneficiaries of the decline in equities. Yields on long-term U. S. government bonds were down about 10 basis points on the week, with the benchmark 10-year note closing at 2.23%, its lowest level in a month and down about 18 bps since May 10. Gold rose more than 2% while crude oil rose more than 5%, with the U.S. benchmark closing above $50 a barrel for the first time in a month. The euro ended at $1.12, up about three cents against the dollar, putting it at its highest level since last October.
Reports on the American economy picked up last week. Industrial production jumped 1% in April, well above expectations and the strongest gain in more than three years. The manufacturing segment was also up 1%, rebounding from the prior month’s 0.4% decline. The Conference Board’s index of leading economic indicators rose 0.3%, in line with estimates. Two Northeast regional Federal Reserve Bank indexes for May were mixed: The Philadelphia Fed’s business outlook survey climbed to 38.8 from 22.0 in April, beating forecasts, but the New York Fed’s Empire State index fell to a negative 1.0. Housing sector markers were mixed. Housing starts fell 2.6% in April, the third decline in four months, to an annual rate of 1.172 million units. The Street was looking for about a 3% gain. At the same time, building permits also fell 2.5%, including a 4.5% decline in the critical single-family sector, by far the largest category. Yet the National Association of Home Builders’ housing market index rose two points in May to 70, its highest level since December and the second best mark since the housing crisis.
Reports/dates/facts/links worth paying attention to over the next week:
1. May 22: Chicago Fed national activity index for April.
2. May 23: New home sales for April.
3. May 24: Existing home sales for April; minutes of the Federal Open Market Committee’s May 3 meeting are released at 2:00 P.M. EST
4. May 25: Weekly unemployment claims.
5. May 26: First quarter GDP, first revision; durable goods orders for April; University of Michigan consumer sentiment index for May, second reading.